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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File No. 0-7843
4Kids Entertainment, Inc.
(Exact name of registrant as specified in its charter)
New York 13-2691380
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1414 Avenue of the Americas, New York, New York 10019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 758-7666
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the closing price of the Common Stock on March 27, 2001
as reported on the New York Stock Exchange Market, was approximately
$146,395,000. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded from this computation in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 Par Value 12,080,493
- ---------------------------- ---------------------------
(Title of Class) (No. of Shares Outstanding at March 27, 2001)
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 23, 2001 are incorporated by reference into Part
III of this Form 10-K Report.
PART I
Item 1. Business
(a) General Development of Business. 4Kids Entertainment, Inc., (the
"Company") is a vertically integrated entertainment-based company. The Company
provides a comprehensive range of services including toy design and development,
domestic and international merchandise licensing, media buying and planning,
international and domestic television and movie distribution and television,
music and film production.
The Company primarily operates through four wholly-owned subsidiaries, Leisure
Concepts, Inc. ("LCI"), Leisure Concepts International, Inc. ("LCII"), The
Summit Media Group, Inc. ("Summit Media") and 4Kids Productions, Inc. ("4Kids
Productions").
LCI provides domestic and international licensing of the commercial rights to
properties, personalities, and product concepts. Leisure Concepts typically acts
as exclusive agent in connection with the grant to third parties of licenses to
manufacture and sell all types of merchandise based on such properties,
personalities and concepts. The licensing of these rights has been primarily in
the areas of toys, electronic games, food, toiletries, apparel, house-wares and
footwear industries. These rights are also licensed in connection with the
production of television shows, motion pictures and publications such as
magazines, books and comic strips.
LCII, based in the Company's London office, provides hands-on management of
properties in the important United Kingdom and European marketplace.
Summit Media provides media planning, buying and marketing services primarily
for toy and video game companies. Summit Media also provides television
distribution services.
4Kids Productions is a television, film, home video and music production company
specializing in youth-oriented entertainment programming.
In addition to the four main subsidiaries described above, the Company has
established one new subsidiary and one new division. The new subsidiary,
Websites 4 Kids, Inc., is a website development company specializing in creating
websites designed for youth-oriented special interest groups. The first site
designed by Websites 4Kids is girlsgymnastics.com by Bela Karolyi, a site which
gives gymnastics instructions and information online. The new division,
Technology 4Kids, was established to develop new toy ideas and concepts which
integrate new and existing technologies with traditional play patterns.
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(b) Financial Information About Industry Segments.
Financial information regarding industry segments can be found in note 11 to
Notes to the Company's Consolidated Financial Statements.
(c) Narrative Description of the Business.
(1) Licensing. The Company's licensing activities are conducted through
its subsidiary, LCI. The licenses in this category of activity are typically
based upon well-known personalities, fictional and fanciful characters, and
established properties often from the entertainment field. These rights in some
cases may be licensed from the owners of such properties and sublicensed to
others, or LCI may acquire the right to represent such owners, usually
exclusively, in the granting of such rights to third parties. LCI negotiates
licensing arrangements directly with manufacturers or users and supervises the
implementation of the agreements.
A license agreement offered to manufacturers in the industry or industries
LCI considers appropriate, may provide the right to manufacture and sell a broad
range of toy products in various categories (a "master toy license") or it may
be limited to the right to manufacture and sell a specific product or product
lines. The typical licensing arrangement provides for the payment of royalties
based upon a percentage of the manufacturer's aggregate net sales, at wholesale,
of the products in question. LCI usually retains as a commission between 10% and
40% of the owner's licensing royalties, which generally range from 4% to 15% of
net wholesale sales.
As part of the standard licensing arrangements, the manufacturer usually
pays LCI a nonrefundable advance which is applied in most cases against a
guaranteed minimum royalty. The percentage of sales or royalty rate, and any
nonrefundable advance against guaranteed minimum payment, are negotiated for
each transaction and vary from industry to industry and from property to
property. Generally, the term of the license runs for one to three years, and
may be renewed by the licensee if certain minimum annual payments are received
under the license agreement. In addition, the agreements usually provide that
the rights under license will revert to the owner unless the manufacturer
commences its marketing activities by a specified date and continues to market
the products thereafter on a regular basis. The average start-up or lead time
necessary for product manufacture and marketing is between approximately six and
eighteen months. LCI does not assist in financing any of these endeavors.
In the case of licenses for motion picture and television productions, the
licensees pay fees for each production, sometimes preceded by option payments,
and, usually in connection with television series, per episode payments and
rerun payments for multiple exhibitions. In some cases, owners participate in
the "net profits" (that is, income less deduction of fees and chargeable
expenses and production costs) that may be realized from the exploitation of the
property in question.
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Licensing revenues accounted for approximately 74%, 82% and 60% of
consolidated net revenues for the years ended December 31, 2000, 1999 and 1998,
respectively.
(2) Certain Licensed Properties Represented Exclusively by LCI Among the
licensed properties represented exclusively by LCI are the following:
o "Pokemon", Nintendo's popular Video game. The Company
represents all merchandising and television and film
distribution rights outside Asia. The term of the
representation agreement for "Pokemon" expires in December
2006. "Pokemon" started in Japan as a Nintendo Game Boy
cartridge that involves finding, capturing, collecting and
training 250 different "Pokemon". LCI has signed Hasbro, Inc.
as the master toy licensee and over 500 licensees worldwide
including Kraft, General Mills, Kelloggs, Welch's, Danone,
Colgate-Palmolive, Scholastic and American Greetings for a
wide range of licensed products. For more information
regarding LCI's agreement with Hasbro, Inc., please see Note
10f. to the Notes to Consolidated Financial Statements.
o Nintendo of America Inc. ("Nintendo"). The Company has
exclusive rights for the various characters, trademarks, and
copyrights arising out of the software for the video games
developed and owned by Nintendo including, Mario, Donkey Kong,
Zelda, GameBoy and Nintendo N64. LCI represents Nintendo for
merchandise licensing on a worldwide basis, other than Japan.
The Company has represented Nintendo since 1988 under a one
year renewable agreement. These video games have consistently
ranked among the top toy sellers.
o Rare; one of Nintendo's most important game developers
providing Nintendo with hit video game titles such as
Goldeneye and Donkey Kong. The Company's representation of
Rare includes the video games "Perfect Dark", "Jet Force
Gemini" and "Conkers Bad Fur Day". The Company represents Rare
on a worldwide basis, excluding Japan through December 31,
2002 with one year extensions thereafter.
o "Cubix"; a new computer animated television series being
developed by the Company for domestic broadcast on Kids' WB in
2001. The Company is a co-producer of "Cubix" in conjunction
with Daiwon C & A Holdings Co., Ltd,
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and Cinepix, two Korean companies. The Company's ownership
rights include television and merchandising outside of Asia.
o "Tama and Friends"; a Japanese animated television series
produced by TBS Service, Inc. and based on a property owned by
Sony Creative Products, Inc. "Tama" was originally broadcast
in Japan. It is expected that the Company's 4Kids Productions
subsidiary will adapt "Tama" for broadcast outside Japan and
that the Company will represent television and merchandise
licensing rights outside of Japan with an initial term
expiring March 2007. "Tama" is expected to begin domestic
broadcast in first run syndication beginning September 2001.
o "Ultraman Tiga"; this live action television series created
and produced by Tsuburaya Productions in Japan has been a
perennial favorite in Japan for thirty years. The Company
represents all television and merchandise licensing rights
outside of Asia.
o "Kinniku-man"; an animated television program produced by Toei
Animation in Japan. "Kinniku-man", which combines comedy with
wrestling, began in Japan over fifteen years ago. The Company
represents all television and merchandise licensing rights
outside of Asia for "Kinniku-man".
o Pace Motor Sports; The Company represents Pace Motor Sports, a
division of SFX Entertainment, which produces over three
hundred Monster Truck events each year. The Company represents
worldwide merchandise licensing rights for Pace.
(3) Company-Owned Properties. World Martial Arts Council ("WMAC") is an
entertainment-based property utilizing skilled martial arts professionals that
was developed and is owned by the Company. The WMAC Masters television series
was launched in September of 1995.
"Charlie Chan" is the fictional Asian detective who has been the subject
of numerous films based on the character created by Earl DeBiggers. In March
2001, the Company optioned the film rights to "Charlie Chan" to Twentieth
Century Fox Film Corporation.
(4) Product Concepts. The product concepts developed by the Company's
Technology 4Kids division usually consist of a novel approach to integrating
existing technology with a toy concept. The Company may conceive of an idea and
then develop it at its own expense by preparing drawings or models of the
products or examples of various
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uses of the concepts, including descriptions or illustrations of plans for the
marketing and merchandising of the product lines in question. The Company will
then seek to license the product concept to manufacturers for which the Company
will typically receive a royalty based upon the manufacturer's wholesale sales.
In other instances, although the Company has not created the original concept,
it will assist in developing a concept, initially conceived by others, into a
commercially viable product line, in which case the Company may act as the
licensor, as the agent for the rights holder of the concept in question or may
simply receive a royalty for services rendered. The Company does not typically
finance the activities of the manufacturers to which it licenses product
concepts. However, the Company sometimes enters into arrangements under which it
defers its royalties until after the manufacturer has recouped its cost of
production. Furthermore, because the costs associated with the development of
product concepts is relatively low, this activity has generally been profitable
for the Company. There can be no assurance, however, that the development of
product concepts will be successful in the future.
(5) Media Buying Planning and Television Distribution. The Company's
subsidiary, Summit Media, provides clients with media planning, buying and
marketing services and television distribution services. These services
accounted for 4%, 5% and 29% of consolidated net revenues for the years ended
December 31, 2000, 1999 and 1998, respectively. Summit Media serves as the
current television distributor for "Pokemon", and it is expected that Summit
Media will also serve as the television distributor for "Cubix" and "Tama and
Friends" and future programs in the calendar years 2001 and 2002.
(6) Television, Film, Music and Home Video Production. The Company's
subsidiary, 4Kids Productions is a television, film, music and home video
production company specializing in youth-oriented entertainment programming.
Entertainment production and programming accounted for 22%,12% and 10% of
consolidated net revenues for the years ended December 31, 2000, 1999 and 1998,
respectively. 4Kids Productions is currently producing the American adaptation
of the Japanese hit "Pokemon" which debuted in the United States in September
1998. After having adapted episodes 1-156 of the hit television series and the
first two "Pokemon" movies, 4Kids is currently adapting episodes 157-208 and the
third full length "Pokemon" feature film which will be released domestically in
April of 2001. Additionally, it is expected that 4Kids will produce the English
language adaptation of "Tama and Friends", "Ultraman" and "Kinniku-man" and the
new television production "Cubix".
(7) Dependence on a Few Sources of Revenues. The Company typically derives
a substantial portion of its revenues from a small number of properties, which
properties usually generate revenues only for a limited period of time. Because
the Company's licensing revenues are highly subject to changing fashion in the
toy and entertainment business, its licensing revenues from year to year from
particular sources are subject to dramatic increases and decreases. It is not
possible to precisely anticipate the length of time a project will be
commercially successful, if at all. Popularity of properties can vary from
months to years. In addition, the Company has little control over the timing of
payments, some of which are made
-7-
upon the execution and delivery of license agreements and others as royalties
are reported. Because of this, the Company must continually seek new properties
from which it can derive revenues.
One property, "Pokemon", contributed revenues of approximately 95% of
consolidated net revenues for fiscal 2000. In 2000, two licensees, Hasbro, Inc.
and Warner Brothers contributed 39% and 14% of consolidated net revenues,
respectively. For more information on Revenues/Major Customers, please see Note
5 to the Notes to Consolidated Financial Statements.
(8) Trademarks and Copyrights. The Company generally does not own any
trademarks or copyrights in properties which it licenses. These rights are
typically owned by the creator or by the entity, such as a television producer,
which may expend substantial amounts in developing or promoting the concept.
However, the Company does own the copyrights and trademarks to "Charlie Chan",
"WMAC Masters" and is a joint copyright holder of "Cubix".
(9) Seasonal Aspects. A substantial portion of the Company's revenues and
net income are subject to the seasonal and trend variations of the toy and game
industry. Typically, a majority of toy orders are shipped in the third and
fourth calendar quarters. As a result, in the Company's usual experience, its
net income from toy and game royalties during the second half of the year has
generally been greater than during the first half of the year. However, the
Company's revenues in fiscal 2000 were influenced more by the popularity trends
and movie release dates of "Pokemon" than the historical seasonal trends of toy
and game sales from properties in past years.
(10) Competition. The principal competitors of the Company's licensing
activities (including product concepts) are the product development,
merchandising, marketing and advertising departments of toy and other juvenile
merchandise manufacturers and motion picture studios as well as independent
advertising agencies, licensing companies and numerous individuals acting as
licensing representatives. There are also many independent product development
firms with which the Company competes. Many of these companies have
substantially greater resources than the Company and represent properties which
have been commercially successful for longer periods than properties represented
by the Company. The Company believes it would be relatively easy for a potential
competitor to enter its market in light of the relatively small investment
required to commence operations. However, the ultimate success of a new entrant
in the field would depend on its access to toy and other manufacturers, sources
of properties to be licensed, its know-how in the negotiation and subsequent
administration of licenses and the retail market acceptance of the property in
question.
The Company's media buying, planning and television distribution
activities as well as its television, music, film and home video production
activities operate in highly competitive industries and face as competitors many
companies with substantially greater resources and distribution networks than
the Company.
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(11) Employees. As of March 27, 2001, the Company had a total of 100
full-time employees consisting of 72 employees in licensing, 18 in media and TV
distribution and 10 in TV and film production.
Item 2. Properties
The following table sets forth, with respect to properties leased (none
are owned) by the Company at March 27, 2001, the location of the property, the
date on which the lease expires and the use which the Company makes of such
facilities:
Approximate
Expiration Square
Address of Lease Use Feet
- -------- -------- ---- ----
1414 Avenue of the Americas April 30, 2010 Executive and Sales 21,000
New York, New York Office, Media
Buying and
Television
Production
116 Putney Bridge Road January 6, 2005 International Sales 4,000
Alice Court Office
London, England
The Company considers that, in general, its physical properties are well
maintained, in good operating condition and adequate for its purposes.
Item 3. Legal Proceedings
(i) Imber v. Nintendo, et al. In September 1999, the Company was named as
a defendant in a lawsuit filed in the United States District Court for the
Southern District of California. Also named as defendants in this lawsuit are
Nintendo of America Inc. and Wizards of the Coast, Inc. The lawsuit (purportedly
brought on behalf of a class of all persons who purchased a package of "Pokemon"
trading cards), seeks to challenge longstanding practices in the trading card
industry, including the practice of randomly inserting premium cards in packages
of "Pokemon" cards. The lawsuit claims that these practices constitute illegal
gambling activity in violation of California and federal law, including the
Federal Racketeer Influenced and Corrupt Organization Act ("RICO"), and seeks an
award of treble damages.
The lawsuit has not specified the amount of damages sought. On April 18,
2000, the District Court issued an Order to Show Cause in the lawsuit(and in a
number of other lawsuits making similar allegations concerning other types of
trading cards) requiring the plaintiffs in all of the cases to show cause why
the cases should not be dismissed for lack of standing. On June 21, 2000, the
Court dismissed the RICO claims with prejudice and all other claims without
prejudice. Plaintiffs have filed a notice of appeal from the District Court's
June 21, 2000 dismissal, and the appeal is pending.
(ii) Morrison v. Nintendo, et al. On March 29, 2000, Morrison
Entertainment Group, Inc., filed suit in the United States District Court for
the Central District of California against Nintendo of America Inc., 4 Kids
Entertainment, Inc. and Leisure Concepts, Inc. The suit alleges that the Pokemon
trademark infringes upon the plaintiff's "Monster in my Pocket" trademark. The
complaint also alleges trademark dilution, unfair competition, and a breach of
implied contract. The complaint seeks injunctive relief as well as monetary
damages. The case is currently in discovery.
(iii) EM.TV & Merchandising AG v. Nintendo, et al. On October 31, 2000,
EM.TV & Merchandising AG filed suit against Nintendo of America, Inc., Leisure
Concepts, Inc. and Lacey Entertainment, Inc., in the United States District
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Court for the Southern District of New York. EM has claimed that the
defendants breached an alleged agreement with EM with respect to EM's services
as subagent for the "Pokemon" property in the territories of Germany, Austria
and Switzerland. EM has further claimed that the defendants breached the alleged
agreement with EM for the license to EM of television broadcast rights to the
3rd and 4th Seasons of "Pokemon" television episodes for broadcast in Germany,
Austria and Switzerland. EM has sought a Declaratory Judgment as well as damages
for breach of contract.
While it is impossible to predict the eventual outcome of these
litigations, the Company believes these litigations will not have a material
adverse effect on the Company's financial position or result of operations.
Item 4. Submission of Matters to a Vote of Security Holders
During the Company's fiscal quarterly period ended December 31, 2000,
there were no matters submitted to a vote of security holders.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) The Company's Common Stock became listed for trading on the New York
Stock Exchange as of September 20, 2000 after having been previously quoted on
the NASDAQ National Market System. The following table indicates high and low
sales quotations for the periods indicated based upon information supplied by
NASDAQ and the New York Stock Exchange.
2000 Low High
- ---- --- ----
First Quarter 18.500 37.313
Second Quarter 15.375 28.125
Third Quarter 16.625 34.375
Fourth Quarter 8.438 17.063
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1999 Low High
- ---- --- ----
First Quarter 2.417 12.958
Second Quarter 7.813 12.500
Third Quarter 8.500 37.750
Fourth Quarter 24.75 93.250
The above-mentioned stock prices have been adjusted to reflect the 3 for 2
stock split effective for shareholders of record on April 15, 1999 and the 2 for
1 stock split effective for shareholders of record on September 1, 1999.
(b) Number of Holders of Common Stock. The number of holders of record of
the Company's Common Stock on December 31, 2000 was 338, which does not include
individual participants in security position listings.
(c) Dividends. There were no dividends or other distributions made by the
Company during 2000 or 1999. Future dividend policy will be determined by the
Board of Directors based on the Company's earnings, financial condition, capital
requirements and other existing conditions. It is anticipated that cash
dividends will not be paid to the holders of the Company's Common Stock in the
foreseeable future.
(d) Stock Purchases. The Board of Directors has authorized the Company,
from time to time, to acquire up to 495,000 shares of its Common Stock in
open-market purchases. Such purchases are to be made out of the Company's
surplus. No such purchases were made by the Company during 2000.
Item 6. Selected Financial Data
Year Ended December 31,
-----------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Total Net Revenues $87,997,468 $60,482,369 $14,767,429 $ 10,116,800 $ 6,677,327
Net Income (Loss) 38,772,580 23,638,426 2,743,069 739,135 (239,304)
Net Income (Loss) Per 3.25 2.20 .31 .08 (.03)
Common Share-Basic
Net Income 2.96 1.91 .27 .08 (.03)
(Loss) Per Common Share-
Diluted
Weighted Average Common 11,947,217 10,741,082 8,982,738 8,834,493 8,834,493
Shares Outstanding-Basic
Weighted Average Common 13,092,653 12,366,349 10,227,081 9,509,637 8,834,493
Shares Outstanding-Diluted
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The amounts shown above give effect to the April 1999 three for two and the
September 1999 two for one stock splits described in Note 8 to the Notes to
Consolidated Financial Statements included herein. The Company did not declare
or pay any cash dividends during the five-year period ended December 31, 2000.
Year Ended December 31,
-----------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Total Assets $176,144,339 $127,103,647 $34,961,155 $39,319,077 $30,432,130
Working Capital 98,610,927 56,982,147 10,823,815 6,823,466 5,342,436
Stockholders' Equity 101,907,764 60,942,916 15,405,255 12,128,739 11,389,604
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company receives revenues from a number of sources, principally
licensing and media buying. The Company typically derives a substantial portion
of its licensing revenues from a small number of properties, which properties
usually generate revenues only for a limited period of time. Because the
Company's licensing revenues are highly subject to changing fashion in the toy
and entertainment business, its licensing revenues from year to year from
particular sources are subject to dramatic increases and decreases. It is not
possible to precisely anticipate the length of time a project will be
commercially successful, if at all. Popularity of properties can vary from
months to years. As a result, the Company's revenues and net income may
fluctuate significantly between comparable periods. The Company's revenues have
historically been primarily derived from the license of toy and game concepts.
Thus, a substantial portion of the Company's revenues and net income are subject
to the seasonal variations and popularity trends of the toy and game industry.
Typically, a majority of toy orders are shipped in the third and fourth calendar
quarters. In addition, the Company's media buying subsidiary concentrates its
activities on the youth-oriented market. As a result, most of its revenue is
earned in the third and fourth quarters when the majority of toy and video game
advertising occurs. In the Company's usual experience, its net income during the
second half of the year will generally be greater than during the first half of
the year. However, the Company's revenues in fiscal 2000 were influenced more by
the popularity trends and movie release dates of "Pokemon" than the historical
seasonal trends of toy and game sales from properties in past years. Further,
the Company has little control over the
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timing of payments, some of which are made upon the execution and delivery of
license agreements.
Results of Operation
Twelve Months Ended December 31, 2000 compared to Twelve Months Ended December
31, 1999.
Consolidated net revenue for the year ended December 31, 2000 increased
45% or $27,515,099 to $87,997,468 in 2000 from $60,482,369 in 1999. Increased
licensing commission revenue resulted primarily from the strength of the
"Pokemon" license. "Pokemon" licensed products maintained their strength as top
selling toy items during 2000 as the popularity spread to international markets
in Europe. Particularly strong were sales of "Pokemon" cards and Hasbro toys as
well as many other licensees' products involved in a wide array of licensing
activities.
Revenue from the Company's media sales and television distribution
services increased from 1999 performance. These activities totaled $3,513,791 or
4% of total net revenue for 2000 as compared to $3,111,305 or 5% in 1999.
Commissions earned on media placed increased as a result acquiring new clients
in the media business. The Company also had its second year of distribution
revenues earned on the license of the "Pokemon" television series to Warner
Bros. for broadcast on Kids' WB.
The Company's television, film and home video production activities
accounted for approximately 22% and 12% of total net revenue in 2000 and 1999,
respectively. Revenue in this segment increased $11,896,000 to $19,374,000 in
2000, an increase of 159%. This increase is primarily attributable to the
successful theatrical and home video releases of the first two "Pokemon" movies.
Selling, general and administrative expenses increased 62% or
approximately $10,296,000 compared to 1999 primarily as a result of increased
costs associated with performance-based bonus payments which are tied to pre-tax
earnings of the Company. Additionally, the Company's expanded licensing
activities during 2000 required additional resources including, marketing,
creative services, sales, and legal costs. Overall selling, general and
administrative expenses increased slightly as a percentage of net revenue to 30%
in 2000 from 27% in 1999.
At December 31, 2000, there were approximately $2,428,407 of capitalized
film production costs relating primarily to 26 episodes of "Cubix" and 26
episodes of "Tama and Friends", which are currently in production. Amortization
of capitalized film costs decreased by $561,407 for the year ended December 31,
2000 as compared to the prior year. At December 31, 2000, the percentage of
unamortized film cost expected to be amortized within the next three years is
over 70%.
As a result of the above, the Company had net income for 2000 of
$38,772,580 as compared to net income in 1999 of $23,638,426.
Twelve Months Ended December 31, 1999 compared to Twelve Months Ended
December 31, 1998.
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Consolidated net revenue for the year ended December 31, 1999 increased
310% or $45,715,000 to $60,482,369 in 1999 from $14,767,429 in 1998. Increased
licensing commission revenue resulted primarily from the strength of the
"Pokemon" license. "Pokemon" licensed products were among the best selling toy
items during the 1999 holiday season. Particularly strong were sales of
"Pokemon" cards and Hasbro toys as well as many new licensees' products involved
in a wide array of licensing activities. Additionally, the Company's licensing
commission revenues from World Championship Wrestling" "WCW/NWO" merchandise
increased over 1998 due to strong toy sales.
Revenue from the Company's media and television distribution services
decreased from 1998 performance. These activities totaled $3,111,305 or 5% of
total net revenue for 1999 as compared to $4,328,808 or 29% in 1998. Commissions
earned on media placed decreased as a result of the loss of Tiger Electronics'
media business. In April 1998, Tiger Electronics was acquired by Hasbro, which
resulted in the consolidation of Tiger Electronics' media buying into Hasbro's
Media Agency. However, partially offsetting the decreased media buying
commission were increased distribution revenues earned on the license of the
"Pokemon" television series to Warner Bros. for broadcast on the Kids' WB.
The Company's television, film and home video production activities
comprised approximately 12% and 11% of total net revenue for 1999 and 1998,
respectively. This revenue related primarily to the "Pokemon" television
programs and filmed entertainment.
Selling, general and administrative expenses increased 114% or
approximately $8,798,000 compared to 1998 primarily as a result of increased
costs associated with performance based bonus payments which are tied to pre-tax
earnings of the Company. Additionally, the Company's expanded licensing
activities during 1999 required additional resources including, marketing
creative services, sales, and legal costs. Overall selling, general and
administrative expenses decreased as a percentage of net revenue to 27% in 1999
from 52% in 1998.
At December 31, 1999 there were approximately $915,935 of capitalized film
production costs, which primarily relates to 26 episodes of "WMAC Masters" and
episodes 105-156 of "Pokemon" which are currently in production. Amortization of
capitalized film costs increased by $1,185,106 for the year ended December 31,
1999 as compared to the prior year. Included in amortization expense for 1999 is
an additional expense of approximately $2,031,000($919,000 in the fourth
quarter) relating to the "WMAC Masters" television program. The charges occurred
as a result of the Company's periodic evaluation of net realizable value of its
capitalized costs. Amortization rates may change as a result of changes in
estimated future revenue. At December 31, 1999 the percentage of unamortized
film cost expected to be amortized within the next three years is over 70%.
As a result of the above, the Company had net income for 1999 of
$23,638,426 as compared to the reported net income in 1998 of $2,743,069.
Liquidity and Capital Resources
At December 31, 2000, the Company had working capital of $98,610,927 as
compared to working capital of $56,982,147 at December 31, 1999. Cash, cash
equivalents and investments increased by $74,333,606 to $148,760,732 from
December 1999. The increase in cash, cash equivalents and investments are
primarily due to the increased levels of the Company's share of royalties
collected from the licensing businesses.
-14-
Accounts receivable, net (current and non-current) decreased to
$16,192,644 at December 31, 2000 from $47,329,385 at December 31, 1999. This
decrease is primarily due to the higher fourth quarter 1999 licensing revenues
as compared to fourth quarter 2000 licensing revenues for the "Pokemon"
property.
Amounts due to licensors, which represent the owners' share of royalties
collected by the Company during the quarter ended December 31, 2000 and payable
to property owners, decreased by $239,414 to $56,795,577 from December 31, 1999.
The decrease is primarily due to slightly lower royalties collected during the
fourth quarter of 2000 as compared to the prior year, which are paid to
licensors in the first quarter of 2001.
In the opinion of management, the Company will be able to finance its
business as currently conducted from its current working capital. Accordingly,
in March 2001, it terminated its $5,000,000 credit facility with the Chase
Manhattan Bank. As the Company explores new and expanded opportunities in the
youth-oriented entertainment market, including television production, it may
seek additional financing alternatives.
Forward-looking Statements
Sections of this Annual Report contain forward-looking statements,
including, without limitation, statements concerning possible or assumed future
results of operations of the Company preceded by, followed by or that include
the words "believes," "expects," "anticipates," "estimates," "intends," "plans"
or similar expressions. For those statements, we claim the protection of the
safe harbor for forward-looking statements contained in the U.S. Private
Securities Litigation Reform Act of 1995.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions. Due to the fact that the Company
faces competition from toy companies, motion picture studios and other licensing
companies, and the uncertainty of the public's response to the Company's
properties, actual results or outcomes may differ materially from any such
forward-looking statements.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
Item 8. Financial Statements and Supplementary Data
Financial Statements and Supplementary Data are attached hereto.
Item 9. Changes in and Disagreements With Accountants in Accounting and
Financial Disclosure
None
-15-
PART III
Item 10. Directors and Executive Officers of the Company
Incorporated by reference to the Company's Definitive Proxy Statement on
Schedule 14A to be filed with the Securities and Exchange Commission within 120
days after the end of the Company's fiscal year for information concerning
directors and officers of the Company.
Item 11. Executive Compensation
Incorporated by reference to the Company's Definitive Proxy Statement on
Schedule 14A to be filed with the Securities and Exchange Commission within 120
days after the end of the Company's fiscal year for information concerning
executive compensation.
-16-
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference to the Company's Definitive Proxy Statement on
Schedule 14A to be filed with the Securities and Exchange Commission within 120
days after the end of the Company's fiscal year for information concerning
security ownership of each person known by the Company to own beneficially more
than 5% of the outstanding shares of Common Stock, of each director of the
Company and all officers and directors as a group.
Item 13. Certain Relationships and Related Transactions
Incorporated by reference to the Company's Definitive Proxy Statement on
Schedule 14A to be filed with the Securities and Exchange Commission within 120
days after the end of the Company's fiscal year for information concerning
certain relationships and related transactions.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements:
The following Consolidated Financial Statements of 4Kids Entertainment, Inc. and
Subsidiaries are included in Item 8:
Page
Number
------
Independent Auditors' Report F-1
Consolidated Balance Sheets -December 31, 2000 and 1999 F-2
Consolidated Statements of Income - Years Ended
December 31, 2000, 1999 and 1998 F-3
Consolidated Statements of F-4
Stockholders' Equity - Years
Ended December 31, 2000, 1999
and 1998
Consolidated Statements of F-5
Cash Flows - Years Ended
December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements F-6 to F-17
(a) 2. and (d) Financial Statement Schedules:
-17-
All schedules have been omitted because they are inapplicable, not required, or
the information is included in the financial statements or notes thereto.
(a) 3. and (c) Exhibits. See Index of Exhibits annexed hereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the final quarter of the Company's
fiscal year ended December 31, 2000.
-18-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 30, 2001 4KIDS ENTERTAINMENT, INC.
By /s/ Alfred R. Kahn,
---------------------------
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 30, 2001 /s/ Alfred R. Kahn,
---------------------------
Chairman of the Board,
Chief Executive Officer and
Director
Date: March 30, 2001 /s/ Jay Emmett,
---------------------------
Director
Date: March 30, 2001 /s/ Joel Cohen,
---------------------------
Director
Date: March 30, 2001 /s/ Joseph P. Garrity,
---------------------------
Executive Vice President,
Treasurer, Principal Financial
Officer, Principal Accounting
Officer and Director
4Kids Entertainment, Inc. and Subsidiaries
Consolidated Financial Statements for the Years Ended
December 31, 2000, 1999 and 1998, and Independent
Auditors' Report
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
4Kids Entertainment, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of 4Kids
Entertainment, Inc. and subsidiaries (the "Company") as of December 31, 2000 and
1999, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of 4Kids Entertainment, Inc. and
subsidiaries at December 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States of America.
Deloitte & Touche, LLP
New York, New York
March 27, 2001
F-1
4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
ASSETS 2000 1999
- ------ ---- ----
CURRENT ASSETS:
Cash and cash equivalents $117,749,331 $ 74,427,126
Investments (Notes 1 and 2) 31,011,401 --
Accounts receivable - net (Note 3) 14,927,485 45,543,575
Film inventory - net (Note 4) 2,260,129 155,353
Prepaid/refundable income taxes (Note 6) 4,524,131 1,815,434
Prepaid expenses and other current assets 2,166,578 1,201,390
----------- -----------
Total current assets 172,639,055 123,142,878
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS -
Net of accumulated depreciation and amortization
of $712,352 and $1,484,020 1,302,548 217,025
ACCOUNTS RECEIVABLE - Noncurrent, net (Note 3) 1,265,159 1,785,810
FILM INVENTORY - Noncurrent, net (Note 4) 168,278 760,582
DEFERRED INCOME TAXES - Noncurrent (Note 6) -- 535,553
SECURITY DEPOSITS AND OTHER ASSETS 769,299 661,799
------------ ------------
TOTAL ASSETS $176,144,339 $127,103,647
============ ============
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Due to licensors (Note 3) $ 56,795,577 $ 57,034,991
Media payable (Note 3) 2,999,603 2,353,732
Accounts payable and accrued expenses 9,217,532 5,564,361
Income taxes payable 1,977,000 34,841
Deferred revenue 2,544,610 --
Deferred tax liability (Note 6) 493,806 1,172,806
------------ ------------
Total current liabilities 74,028,128 66,160,731
DEFERRED INCOME TAXES - Noncurrent (Note 6) 208,447 --
------------ ------------
Total liabilities 74,236,575 66,160,731
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Notes 8 and 9):
Preferred stock, $.01 par value -
authorized, 3,000,000 shares; none issued -- --
Common stock, $.01 par value - authorized,
40,000,000 shares; issued, 12,080,493
and 11,857,755 shares 120,805 118,578
Additional paid-in capital 28,963,499 26,773,458
Retained earnings 72,823,460 34,050,880
------------ ------------
Total stockholders' equity 101,907,764 60,942,916
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $176,144,339 $127,103,647
============ ============
See notes to consolidated financial statements.
F-2
4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
---- ---- ----
REVENUES:
Net revenues (Note 5) $87,997,468 $60,482,369 $14,767,429
----------- ----------- -----------
COSTS AND EXPENSES:
Selling, general and administrative (Note 10) 26,779,377 16,483,390 7,685,887
Amortization of capitalized film costs (Note 4) 3,325,943 3,887,350 2,702,244
Total costs and expenses 30,105,320 20,370,740 10,388,131
---------- ----------- ----------
INCOME FROM OPERATIONS 57,892,148 40,111,629 4,379,298
INTEREST INCOME 6,615,432 1,159,797 335,771
----------- ----------- -----------
INCOME BEFORE INCOME TAX
PROVISION 64,507,580 41,271,426 4,715,069
INCOME TAX PROVISION (Note 6) 25,735,000 17,633,000 1,972,000
----------- ----------- -----------
NET INCOME $38,772,580 $23,638,426 $ 2,743,069
=========== =========== ===========
PER SHARE AMOUNTS (Note 9):
Basic earnings per common share $ 3.25 $ 2.20 $ 0.31
=========== =========== ===========
Diluted earnings per common share $ 2.96 $ 1.91 $ 0.27
=========== =========== ===========
Weighted average common shares
outstanding - basic (Note 9) 11,947,217 10,741,082 8,982,738
=========== =========== ===========
Weighted average common share
outstanding - diluted (Note 9) 13,092,653 12,366,349 10,227,081
=========== =========== ===========
See notes to consolidated financial statements.
F-3
4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
BALANCE, DECEMBER 31, 1997 2,944,831 29,448 4,429,906 7,669,385 12,128,739
Proceeds from exercise of
stock options 117,904 1,179 230,568 -- 231,747
Tax benefit from exercise of
stock options -- -- 301,670 -- 301,670
Net income -- -- -- 2,743,069 2,743,069
---------- -------- ----------- ----------- ------------
BALANCE, DECEMBER 31, 1998 3,062,735 30,627 4,962,144 10,412,454 15,405,225
3 for 2 and 2 for 1
stock splits 6,125,470 61,255 (61,255) -- --
Proceeds from exercise of
stock options 2,669,550 26,696 3,472,655 -- 3,499,351
Tax benefit from exercise of
stock options -- -- 18,399,914 -- 18,399,914
Net income -- -- -- 23,638,426 23,638,426
---------- -------- ----------- ----------- ------------
BALANCE, DECEMBER 31, 1999 11,857,755 $118,578 $26,773,458 $34,050,880 $ 60,942,916
Proceeds from exercise of
stock options 222,738 2,227 372,054 -- 374,281
Tax benefit from exercise of
stock options -- -- 1,817,987 -- 1,817,987
Net income -- -- -- 38,772,580 38,772,580
---------- -------- ----------- ----------- ------------
BALANCE, DECEMBER 31, 2000 12,080,493 $120,805 $28,963,499 $72,823,460 $101,907,764
========== ======== =========== =========== ============
See notes to consolidated financial statements.
F-4
4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 38,772,580 $ 23,638,426 $ 2,743,069
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 356,679 108,699 124,514
Amortization of capitalized film costs 3,325,943 3,887,350 2,702,244
Provision for losses on accounts receivable 200,000 827,840 352,500
Deferred income taxes 65,000 (892,759) 484,598
Changes in operating assets and liabilities:
Accounts receivable - net 30,936,741 (27,835,283) 9,768,664
Film inventory - net (4,838,415) (1,848,608) (1,140,912)
Prepaid/refundable income taxes (2,708,697) (1,490,570) (321,585)
Prepaid expenses and other current assets (965,188) (49,416) (89,975)
Security deposits and other assets (107,500) (378,840) 8,503
Due to licensors (239,414) 53,344,409 209,814
Media payable 645,871 (9,107,181) (10,130,259)
Income taxes payable 1,942,159 (1,715,958) 1,443,769
Accounts payable and accrued expenses 3,653,171 4,278,737 357,670
Deferred revenue 2,544,610 -- --
------------ ------------ ------------
Net cash provided by operating activities 73,583,540 42,766,846 6,512,614
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of commercial paper (31,011,401) -- --
Purchase of property and equipment (1,442,202) (150,941) (101,648)
------------ ------------ ------------
Net cash used in investing activities (32,453,603) (150,941) (101,648)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options
and related tax benefit 2,192,268 22,061,265 533,417
------------ ------------ ------------
Net cash provided by financing activities 2,192,268 22,061,265 533,417
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 43,322,205 64,677,170 6,944,383
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 74,427,126 9,749,956 2,805,573
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $117,749,331 $ 74,427,126 $ 9,749,956
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Income Taxes $ 24,583,711 $ 3,324,329 $ 17,000
============ ============ ============
See notes to consolidated financial statements
F-5
4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED December 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of all wholly-owned subsidiaries. All related
significant intercompany balances and transactions have been eliminated in
consolidation.
Description and Accounting Basis for Revenues - 4Kids Entertainment, Inc.
and subsidiaries (the "Company") is an integrated entertainment and media
company specializing in the youth oriented market.
Licensing Business - Through the Company's wholly-owned subsidiaries of
Leisure Concepts, Inc. and Leisure Concepts International, Inc., the
Company's licensing subsidiaries are engaged primarily in the business of
licensing the commercial rights to properties, personalities, and product
concepts. The Company typically acts as exclusive agent in connection with
the grant to third parties of licenses to manufacture and sell all types
of merchandise based on properties, personalities and concepts. The
licensing of these rights has been primarily in the area of toys, games
and other juvenile merchandise. Grants have also been made in other
fields, including the food, toiletries, houseware, apparel and footwear
industries. Additionally, these rights are licensed in connection with the
production of television shows, motion pictures and publications such as
magazines, juvenile books and comic strips.
These license agreements often include nonrefundable minimum guaranteed
royalties which are payable by the licensee. The Company records as
commission revenue its proportionate share of the minimum guarantee when
all material terms or contingencies of the contracts have been agreed to
by the parties and a cash payment or reasonable assurance of
collectability is received. It is at this point that the Company has
substantially performed all of its obligations under the contract.
For contracts not providing minimum guaranteed royalties and for royalty
amounts in excess of the minimum guarantee, the Company records commission
revenue based upon its share of earned royalties from the sales of the
related property.
Television, Film and Video Productions - Through the Company's
wholly-owned subsidiary, 4Kids Productions, Inc., the Company accounts for
its activities associated with the production of entertainment programming
in accordance with Statement of Financial Accounting Standards No. 53
("SFAS No. 53"), Financial Reporting by Producers and Distributors of
Motion Picture Films. Under SFAS No. 53, the Company capitalizes costs
associated with each individual production. The capitalized costs are
classified into current and noncurrent assets depending on an estimate of
when revenues associated with those costs are anticipated to be
recognized. Such costs are amortized against the related revenue as such
revenue is recognized. Amortization rates may change as a result of
changes in estimated future revenue. Periodically, the Company evaluates
the anticipated future revenue against the net realizable value of the
capitalized costs and, where appropriate, reduces the carrying value of
such costs to their estimated net realizable amount which would result in
a corresponding charge to earnings.
Media Buying, Planning and Distribution Services - Through the Company's
wholly-owned subsidiary, The Summit Media Group, Inc. ("Summit Media"),
the Company provides media planning and buying services for both print and
broadcast. Summit Media is compensated based on a percentage of the media
it places. Such revenue is recognized at the time the related media runs.
Summit Media also provides television distribution services for which it
receives a fee based on a percentage of the license fee paid by the
broadcaster or, in the case of syndicated programming, a percentage of the
advertising sales generated by the related program. Such revenue is
recognized at the time the distribution services are completed and the
license fee or the advertising sales of the related program are reasonably
known. Summit Media will reflect a liability for media payable and a
F-6
corresponding receivable from its clients in circumstances where Summit
Media assumes the payment obligation for advertising media commitments.
Furniture, Fixtures and Computer Equipment - Furniture, equipment and
leasehold improvements are recorded at cost. Depreciation is computed
using various methods over the estimated lives of the assets.
Imputed Interest - The Company imputes interest on the noncurrent portion
of accounts receivable at an average rate of 7% for 2000 and 1999.
Cash and Cash Equivalents - At December 31, 2000 and 1999, the Company had
cash equivalents consisting primarily of funds invested in A-1, P-1 rated
commercial paper and Treasury bills of approximately $103,298,786 and
$73,918,572 respectively, with original maturities of 90 days or less.
Included in cash and cash equivalents are accounts in various banks which
maintain balances in excess of the FDIC insured limit of $100,000 per
bank. At December 31, 2000 and 1999, respectively, the excess cash
amounted to a total of $14,350,545 and $408,554.
Investments - Management determines the appropriate classification of its
debt securities at the time of purchase. Debt securities for which the
Company has both the intent and ability to hold to maturity are classified
as held to maturity. These securities are carried at amortized cost. At
December 31, 2000, the Company had no investments that qualified as
trading or available for sale.
At December 31, 2000 the Company's investments in debt securities were
classified as short-term investments. The Company maintains these balances
principally in A-1, P-1 rated commercial paper with various financial
institutions. These financial institutions are located in different areas
of the U.S. and Company policy is designed to limit exposure to any one
institution. The Company performs periodic evaluations of the relative
standing of those financial institutions that participate in the Company's
investment strategy.
Fair Value of Financial Instruments - Carrying amounts of certain of the
Company's financial instruments, including cash and equivalents, accrued
payroll, and other accrued liabilities, approximate fair value because of
their short maturities. The fair values of investments are determined
using quoted market prices for those securities or similar financial
instruments.
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
New Accounting Pronouncements - In June 2000, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities". This statement addresses a limited number of
issues causing implementation difficulties for entities applying SFAS No.
133. SFAS No. 133 requires that any entity recognize all derivative
instruments as either assets or liabilities in the balance sheet and
measure those instruments at fair value. This statement is effective for
all fiscal quarters beginning after June 15, 2000. The Company has
determined that this statement will not have an impact on the financial
statements or disclosures, as it does not enagage in derivatives or
hedging transactions.
In 2000, the FASB rescinded FASB Statement No. 53 and AcSEC issued
Statement of Position ("SOP") 00-2, "Accounting by Producers or
Distributors of Films". The SOP establishes, among other things, how an
entity should recognize revenue from a sale or licensing arrangement of a
film. This SOP is effective for financial statements for fiscal years
beginning after December 15, 2000. The adoption of this SOP does not have
a material effect on the consolidated financial position of the Company.
F-7
2. INVESTMENTS
Details as to investments are as follows:
December 31,
2000 1999
---- ----
Amortized Cost Fair Value Amortized Cost Fair Value
Held-to-maturity:
Commercial paper $31,011,401 $31,011,401 $ -- $ --
----------- ----------- --------------- ----------
3. ACCOUNTS RECEIVABLE AND MEDIA PAYABLE/DUE TO LICENSORS
Generally, licensing contracts provide for the Company to collect, on
behalf of the licensor, royalties including minimum guarantees from the
licensees. The Company records as accounts receivable its proportionate
share of such minimum guarantees and its share of earned royalties in
excess of guarantees.
Due to licensors represents amounts collected by the Company on behalf of
licensors, which are generally payable to such licensors after the close
of the quarter.
Additionally, accounts receivable include amounts due from clients for
earned commissions and the cost of related media placed on their behalf in
circumstances where the Company has assumed the payment obligation for
such media. In such circumstances, the Company will record a corresponding
liability for media payable. Accounts receivable consist of the following:
December 31,
2000 1999
Gross accounts receivable $16,713,439 $47,650,180
Allowance for doubtful accounts (520,795) (320,795)
----------- -----------
16,192,644 47,329,385
Less long-term portion 1,265,159 1,785,810
----------- -----------
$14,927,485 $45,543,575
=========== ===========
F-8
4. FILM INVENTORY
At December 31, 2000, there was $2,428,407 of capitalized film costs,
which relate to two completed works and two works in progress.
Amortization of capitalized film cost was $3,325,943, $3,887,350 and
$2,702,244 in 2000, 1999 and 1998, respectively. Inclusive in the
amortization above, the Company recorded charges of approximately
$592,000, $2,031,000 and $1,424,000, respectively, to reduce the carrying
value of film inventory primarily related to producing "WMAC Masters" and
"Monster Wars" television programs. These reductions of carrying values
were based on the Company's periodic evaluation of anticipated future
revenue against the net realizable value of capitalized cost. Film
inventory consists of the following components:
December 31,
2000 1999
Opening balance $ 915,935 $ 2,954,677
Additions 4,838,415 1,848,608
----------- -----------
5,754,350 4,803,285
Amortization (3,325,943) (3,887,350)
----------- -----------
Ending Balance 2,428,407 915,935
Less noncurrent portion (168,278) (760,582)
----------- -----------
$ 2,260,129 $ 155,353
=========== ===========
5. REVENUES/MAJOR CUSTOMERS
Licensing commission revenues included on the Statements of Income are net
of licensor participations of approximately $183,030,000, $142,433,000 and
$26,473,000 in 2000, 1999 and 1998, respectively.
The percentages of revenue from major properties and customers/licensees
are as follows:
Year Ended December 31,
2000 1999 1998
Percentage of revenue derived from major properties (revenue in
excess of 10 percent of total revenue) 95% 82% 52%
Number of major properties 1 1 3
Percentage of revenue derived from major customers/licensees
(revenue in excess of 10 percent of total revenue) 53% 39% 14%
Number of major customers/licensees 2 1 1
Additionally, through the Company's London office and network of
international subagents, which allow it to license its properties through
the world, the Company recognized approximately $9,446,000, $673,000 and
$446,000 in net revenue from international sources, primarily in Europe,
for 2000, 1999 and 1998, respectively.
6. INCOME TAXES
The Company has provided for deferred income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes," whereby deferred income taxes are determined based upon
the enacted income tax rates for the years in which these taxes are
estimated to be payable or
F-9
recoverable. Deferred income taxes arise from temporary differences
resulting from a difference between the tax basis of an asset or liability
and its reported amount in the financial statements.
The income tax provision/(benefit) includes the following:
Years Ended December 31,
2000 1999 1998
Current:
Federal $18,214,000 $13,507,000 $1,120,000
State and local 5,480,000 5,019,000 367,000
Foreign 1,977,000 -- --
----------- ---------- ---------
25,671,000 18,526,000 1,487,000
----------- ---------- ---------
Deferred:
Federal 55,000 (727,000) 383,000
State and local 9,000 (166,000) 102,000
----------- ---------- ---------
64,000 (893,000) 485,000
----------- ---------- ---------
$25,735,000 $17,633,000 $1,972,000
=========== =========== ==========
The provision for taxes as reported is different than the tax provision
computed by applying the statutory Federal rate of 35 percent. The
differences are as follows:
Years Ended December 31,
2000 1999 1998
Income before income tax provision $64,507,580 $41,271,426 $4,715,069
=========== =========== ==========
Provision at the statutory Federal rate $22,578,000 $14,445,000 $1,603,000
Provision for state and local income taxes net of
Federal income tax benefit 3,568,000 3,154,000 310,000
Effect of lower foreign tax rate (329,000) -- --
Other (82,000) 34,000 59,000
----------- ----------- ----------
$25,735,000 $17,633,000 $1,972,000
=========== =========== ==========
Income tax benefits, which related to the exercise of non-qualified stock
options reduced current taxes payable and increased additional paid-in
capital by approximately $1,818,000, $18,400,000 and $302,000 in 2000,
1999 and 1998, respectively.
F-10
The Company's deferred tax liabilities are net of deferred tax assets of
approximately $317,000 and $1,557,000 at December 31, 2000 and 1999,
respectively. The components of the deferred tax balances at December 31,
2000 and 1999 are as follows:
Years Ended December 31,
2000 1999
Commissions on guarantees not currently recognized for
tax reporting purposes $(1,019,000) $(2,032,000)
Tax benefit of state and local tax loss carryforwards -- (162,000)
Provision for doubtful accounts not currently deductible
for tax reporting purposes 223,000 138,000
Film inventory valuation adjustment not currently
deductible for tax reporting purposes 57,000 1,419,000
Other 37,000 --
----------- -----------
$ (702,000) $ (637,000)
=========== ===========
The Company has determined that earnings for 2000 of approximately
$6,589,000 of its foreign subsidiary will remain invested overseas for the
indefinite future. It is impractical to determine the ultimate tax effects
of remittance of these earnings.
7. STOCK OPTIONS
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting
for its stock option plans. Accordingly, no compensation expense has been
recognized for its stock-based compensation plans. Had compensation cost
for the Company's stock option plans been determined based upon the fair
value at the grant date for awards under these plans consistent with the
methodology prescribed under Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation, the Company's net income
and net income per share would have been decreased by approximately
$1,637,000, $2,745,000 and $518,000, or $.14, $.23 and $.06 basic
earnings per share for 2000, 1999 and 1998, respectively. The weighted
average fair value of options granted was $28.375, $20.77 and $1.05 during
2000, 1999 and 1998, respectively. The fair value of the options granted
during 2000, 1999 and 1998 are estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
dividend yield 0% for all years, volatility of 124%, 114% and 85% for
2000, 1999 and 1998, respectively, risk-free interest rate of 4.40%, 6.55%
and 5.14% for 2000, 1999 and 1998, respectively, and an expected life of
three years based on the estimated holding period giving consideration to
past experience and current stock price levels.
The Company has various stock option plans (the "Plans"). Options may be
exercised for a period of not more than ten years after the date of grant.
Unless otherwise determined by the Company's Stock Option Committee, each
option will be immediately exercisable with respect to 50 percent of the
shares subject to the option and will become exercisable with respect to
the other 50 percent on the first anniversary of the date of grant.
Certain of the Plans permit the Committee to grant nonqualified options,
with an exercise price of not less than 85 percent of the fair market
value of the common stock; all other options must be at 100 percent of the
fair market value.
F-11
The Company has outstanding stock options as follows:
Weighted
Average
Exercise Price Exercise
Options Per Share Price
Outstanding at December 31, 1997 4,399,500 0.458 - 3.417 1.367
========== ======= ======= =======
Options granted 993,000 0.917 - 3.104 1.923
Options expired (94,500) 2.042 - 3.250 2.617
Options exercised (353,712) 0.458 - 0.875 0.653
---------- ------- ------- -------
Outstanding at December 31, 1998 4,944,288 0.458 - 3.104 1.433
========== ======= ======= =======
Options granted 265,000 10.313 - 33.280 29.380
Options expired (15,000) 3.250 - 3.250 3.250
Options exercised (2,669,550) 0.528 - 3.104 1.310
---------- ------- ------- -------
Outstanding at December 31, 1999 2,524,738 0.458 - 33.281 4.500
========== ======= ======= =======
Options granted 50,000 28.375 - 28.375 28.375
Options exercised (222,738) 0.458 - 10.313 1.680
---------- ------- ------- -------
Outstanding at December 31, 2000 2,352,000 0.458 - 33.281 5.278
========== ======= ======= =======
Exercisable at December 31, 2000 2,327,000 $ 0.458 - $33.281 $ 5.030
========== ======= ======= =======
Under the Company's various stock option plans, 710,000 of the Company's
common stock were available at December 31, 2000 for future issuance.
Additionally, on January 2, 2001 the Company granted 693,000 non-qualified
stock options to various employees, executive officers and Directors at an
exercise price of $8.9375, the market price of the Company's common stock
on that date.
At December 31, 2000, there were 3,062,000 shares of the Company's common
stock reserved for stock options. The following table summarizes
information about fixed-price stock options outstanding at December 31,
2000:
Options Outstanding Options Exercisable
------------------------------------------- ------------------------
Weighted Weighted
Number Weighted Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 12/31/00 Contractual Life Price at 12/31/00 Price
$ 0.4583 - $ 1.8958 1,476,950 3 years $ 1.03 1,476,950 $ 1.05
$ 2.6875 - $10.3125 605,050 4 years $ 3.50 605,050 $ 3.51
$28.3750 - $33.2813 270,000 6 years $32.37 245,000 $32.78
--------- ---------
2,352,000 2,327,000
========= =========
8. STOCK SPLITS
On March 29, 1999 the Company's Board of Directors approved the
declaration of a 3 for 2 stock split effective for shareholders of record
on April 15, 1999. On August 12, 1999, the Company's Board of Directors
approved the declaration of a 2 for 1 stock split effective for
shareholders of record on September 1, 1999.
F-12
The effect of the stock splits have been recognized retroactively in the
shareholders' equity accounts on the balance sheets as of December 31,
2000 and in all share and per share data in the accompanying consolidated
financial statements, notes to financial statements and supplemental
financial data. Shareholders' equity accounts have been restated to
reflect the reclassification of an amount equal to par value of the
increase in issued common shares from the additional paid-in capital
account.
9. EARNINGS PER SHARE
The Company applies Statement of Accounting Standards ("SFAS") No. 128
"Earnings per Share" which requires the computation and presentation of
earnings per share ("EPS") to include basic and diluted EPS. Basic EPS is
computed based solely on the weighted average number of common shares
outstanding during the period. Diluted EPS reflects all potential dilution
of common stock. The following table reconciles Basic EPS with Diluted EPS
for the three years ended December 31, 2000.
For the Year Ended 2000
Income Shares Per Share
Basic earnings per share:
Income available to common shareholders $38,772,580 11,947,217 $3.25
Effect of dilutive security:
Stock options -- 1,145,436 --
----------- ---------- -----
Diluted earnings per share $38,772,580 13,092,653 $2.96
=========== ========== =====
For the Year Ended 1999
Income Shares Per Share
Basic earnings per share:
Income available to common shareholders $23,638,426 10,741,082 $2.20
Effect of dilutive security:
Stock options -- 1,625,267 --
----------- ---------- -----
Diluted earnings per share $23,638,426 12,366,349 $1.91
=========== ========== =====
For the Year Ended 1998
Income Shares Per Share
Basic earnings per share:
Income available to common shareholders $ 2,743,069 8,982,738 $0.31
Effect of dilutive security:
Stock options -- 1,244,343 --
----------- ---------- -----
Diluted earnings per share $ 2,743,069 10,227,081 $0.27
=========== ========== =====
F-13
10. COMMITMENTS AND CONTINGENCIES
a. Bonus Plan - Bonuses under the Bonus Plan are based upon an amount
up to 14 percent of pretax profits. Key officers and employees, as
designated by the Board of Directors, can be included in the Bonus
Plan. For 2000, 1999 and 1998, the Board of Directors, under the
Bonus Plan, awarded the Chairman and Chief Executive Officer of the
Company approximately $7,561,000, $4,771,000 and $557,000,
respectively. An additional amount of approximately $1,890,000,
$1,168,000 and $139,000 under the Bonus Plan was granted to two
employees, one of which was an officer, in 2000, 1999 and 1998,
respectively.
b. Leases - The Company leases certain office and administrative
facilities. Commitments for minimum rentals under non-cancellable
leases at the end of 2000 are as follows:
Year Ending
December 31, Amount
2001 $ 646,175
2002 651,859
2003 668,156
2004 860,043
2005 966,364
2006 and thereafter 4,453,965
----------
$8,246,562
==========
Rent expense for all operating leases charged against earnings
amounted to $600,033, $438,534 and $421,024 in 2000, 1999 and 1998,
respectively.
c. Litigation - (i) Imber v. Nintendo, et al. In September 1999, the
Company was named as a defendant in a lawsuit filed in the United
States District Court for the Southern District of California. Also
named as defendants in this lawsuit are Nintendo of America Inc. and
Wizards of the Coast, Inc. The lawsuit (purportedly brought on
behalf of a class of all persons who purchased a package of
"Pokemon" trading cards), seeks to challenge longstanding practices
in the trading card industry, including the practice of randomly
inserting premium cards in packages of "Pokemon" cards. The lawsuit
claims that these practices constitute illegal gambling activity in
violation of California and federal law, including the Federal
Racketeer Influenced and Corrupt Organization Act ("RICO"), and
seeks an award of treble damages.
The lawsuit has not specified the amount of damages sought. On April
18, 2000, the District Court issued an Order to Show Cause in the
lawsuit (and in a number of other lawsuits making similar
allegations concerning other types of trading cards) requiring the
plaintiffs in all of the cases to show cause why the cases should
not be dismissed for lack of standing. On June 21, 2000, the Court
dismissed the RICO claims with prejudice and all other claims
without prejudice. Plaintiffs have filed a notice of appeal from the
District Court's June 21, 2000 dismissal, and the appeal is pending.
(ii) Morrison v. Nintendo, et al. On March 29, 2000, Morrison
Entertainment Group, Inc., filed suit in the United States District
Court for the Central District of California against Nintendo of
America Inc., 4 Kids Entertainment, Inc. and Leisure Concepts, Inc.
The suit alleges that the "Pokemon" trademark infringes upon the
plaintiff's "Monster in my Pocket" trademark. The complaint also
alleges trademark dilution, unfair competition, and a breach of
implied contract. The complaint seeks injunctive relief as well as
monetary damages.
F-14
(iii) EM.TV & Merchandising AG v. Nintendo, et al. On October 31,
2000, EM.TV & Merchandising AG filed suit against Nintendo of
America, Inc. Leisure Concepts, Inc., and Lacey Entertainment, Inc.,
in the United States District Court for the Southern District of New
York. EM has claimed that the defendants breached an alleged
agreement with EM with respect to EM's services as subagent for the
"Pokemon" property in the territories of Germany, Austria and
Switzerland. EM has further claimed that the defendants breached the
alleged agreement with EM for the license to EM of television
broadcast rights to the 3rd and 4th Seasons of "Pokemon" television
episodes for broadcast in Germany, Austria and Switzerland. EM has
sought a Declaratory Judgment as well as damages for breach of
contract.
While it is impossible to predict the eventual outcome of these
litigations, the Company believes these litigations will not have a
material adverse effect on the Company's financial position or
result of operations.
d. Credit Facility - The Company's line of credit (the "Credit
Facility") from Chase Bank expires in June 2001. Under the terms of
the agreement, the Company may borrow from time to time for general
working capital purposes up to $5,000,000. The Company terminated
this credit facility in March 2001 as it considered its current
working capital sufficient for its anticipated requirements. As of
December 31, 2000 and 1999, the Company had no borrowings under the
Credit Facility.
e. Employment Contracts - The Company has employment agreements and
arrangements with its executive officers and certain management
personnel. The agreements generally continue until terminated by the
executive or the Company, and provide for severance payments under
certain circumstances. The majority of the agreements and
arrangements provide the employees with certain additional rights
after a Change of Control (as defined) of the Company occurs. The
agreements include a covenant against competition with the Company,
which extends for a period of time after termination for any reason.
As of December 31, 2000, if all of the employees under contract were
terminated by the Company without good cause or following a Change
of Control, (as defined) under these contracts, the Company's
liability would be approximately $10,873,000.
These employment agreements provide for an aggregate minimum annual
base compensation of $1,645,000 expiring on various dates through
2003.
f. Master Toy Licensee - Leisure Concepts, Incorporated, a wholly owned
subsidiary of the Company, is the exclusive Merchandise Licensing
Agent for the "Pokemon" property outside Asia. The master toy
licensee ("Licensee") for the "Pokemon" property and The Pokemon
Company LLC, (the assignee of certain rights and obligations of
Nintendo of America Inc. with respect to the "Pokemon" property)
have entered into a new agreement (the "Agreement") effective
January 1, 2001. The Agreement supersedes the original Merchandise
License Agreement, dated as of May 14, 1998 as amended in September,
1999.
Under the revised terms of the Agreement, the parties have agreed,
inter alia, that Licensee will pay a minimum royalty for the period
starting January 1, 2001 and ending December 31, 2003. If all of the
conditions under the Agreement are met and the full amount of the
minimum guaranteed royalties are paid by Licensee, the Company's
share would be not less than $7,500,000 over the period of the
Agreement. Additionally, Licensee has agreed that any amounts paid
by the Licensee under the original Merchandise License Agreement
including the advance paid in April, 2000 are non-refundable and
non-recoupable against any future royalties.
F-15
11. SEGMENT AND RELATED INFORMATION
The Company applies Statement of Financial Accounting Standards No. 131
("SFAS No. 131"), "Disclosures About Segments of an Enterprise and Related
Information". The Company has three reportable segments; Licensing, Media
Buying Planning and Television Distribution and Television and Film
Production.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company does not have
any inter-segment sales or transfers.
The Company's reportable segments are strategic business units which,
while managed separately, work together as a vertically integrated
Entertainment Company.
The Company's headquarters and major sales office are located in the
United States, with one sales office located in the United Kingdom.
Substantially all consolidated revenue and assets are derived and held
within the United States operations.
Financial information by business segments follows:
MEDIA & TV & FILM
LICENSING TV DISTRIBUTION PRODUCTION TOTAL
2000
Revenues $ 65,109,607 $ 3,513,791 $19,374,070 $ 87,997,468
Amortization -- -- 3,325,943 3,325,943
Segment Profit 51,767,974 121,466 12,618,140 64,507,580
Segment Assets 160,788,003 6,797,824 8,558,512 176,144,339
Interest Income 6,461,208 154,224 -- 6,615,432
1999
Revenues $ 49,892,732 3,111,305 $ 7,478,332 $ 60,482,369
Amortization -- -- 3,887,350 3,887,350
Segment Profit 38,613,609 234,809 2,423,008 41,271,426
Segment Assets 110,752,722 5,132,882 11,218,043 127,103,647
Interest Income 959,591 200,206 -- 1,159,797
1998
Revenues $8,837,224 $ 4,328,808 $ 1,601,397 $ 14,767,429
Amortization -- 105,179 2,597,065 2,702,244
Segment Profit 4,825,136 1,158,319 (1,268,386) 4,715,069
Segment Assets 14,213,786 17,290,624 3,456,745 34,961,155
Interest Income 169,679 166,092 -- 335,771
F-16
12. SUMMARIZED QUARTERLY DATA (UNAUDITED):
Following is a summary of the quarterly results of operation for the years
ended December 31, 2000, and 1999:
Fiscal Quarter
First Second Third Fourth Total
- ----------------------------------------------------------------------------------------------------------
2000
Net sales $20,699,519 $23,398,277 $24,740,549 $19,159,123 $87,997,468
Net earnings 9,329,999 10,177,591 10,722,620 8,542,370 38,772,580
Basic earnings per share $0.79 $0.86 $0.90 $0.71 $3.25
Diluted earnings per share $0.71 $0.78 $0.82 $0.65 $2.96
1999
Net sales $ 3,251,941 $ 5,506,954 $16,833,357 $34,890,117 $60,482,369
Net earnings 744,630 1,928,137 6,830,139 14,135,520 23,638,426
Basic earnings per share $0.08 $0.18 $0.61 $1.21 $2.20
Diluted earnings per share $0.07 $0.16 $0.54 $1.08 $1.91
******
F-17
INDEX OF EXHIBITS
Exhibit Page
Number Description Number
- ------ ----------- ------
(3) (a) Certificate of Incorporation of the Registrant, as amended (13)
(b) By-Laws of the Registrant adopted by the Board of Directors on
March 28, 1991 (2)
(c) Resolution of the Board of Directors of the Registrant adopted March
12, 1991 reducing the size of the Board from six directors to three
directors (2)
(4) (a) Form of Common Stock Certificate (3) (10)(a) Bonus Plan of the
Registrant (*)(4)
(b) 1985 Non-Qualified Stock Option Plan, as amended (*)(4)
(c) 1986 Stock Option Plan, as amended (*)(4)
(d) 1992 Stock Option Plan (*)(5) (e) 1993 Stock Option Plan (*)(6)
(f) 1994 Stock Option Plan (*)(10)
(g) 1995 Stock Option Plan (*)(11)
(h) 1996 Stock Option Plan (*)(15)
(i) 1997 Stock Option Plan (*)(17)
(j) 1998 Stock Option Plan (*)(18)
(k) 1999 Stock Option Plan (*)(19)
(l) 2000 Stock Option Plan (*)(20)
(m) Stock Option Agreement, dated June 10, 1992, between the Registrant
and Randy O. Rissman (*)(7)
(n) Stock Option Agreement, dated June 10, 1992, between the Registrant
and Gerald Rissman (*)(7)
(o) Agreement between Nintendo of America, Inc. and the Registrant dated
December 17, 1987 (4)
(p) Agreement of Lease, dated March 28, 1988, between the Registrant and
1414 Americas Company (2)
(q) Amendment, dated July 8, 1994, to Agreement of Lease between the
Registrant and 1414 Americas Company.
(12)
(r) Agreement of Lease, dated June 30, 1991, between the Registrant and
Olympic Purdue Associates (the "Olympic Lease") (7)
(s) First Amendment, dated January 3, 1994, to the Olympic Lease (7) (t)
Agreement of Lease, dated March 23, 1993, between Leisure Concepts
International, Inc. and Svenska Handelsbanken (7)
(u) Employment Agreement, dated March 12, 1991 between the Registrant
and Alfred R. Kahn(*)(8) (v) Employment Agreement, dated June 3,
1991, between the Registrant and Joseph Garrity (*)(9)
(w) Amendment, dated as of October 17, 1994, to the Employment Agreement
between the Registrant and Joseph Garrity (*)(12)
Exhibit Page
Number Description Number
- ------ ----------- ------
(x) Employment Agreement, dated January 1, 1995 between The Summit Media
Group, Inc. and Sheldon Hirsch.(*)(13)
(y) Employment Agreement, dated January 1, 1995 between The Summit Media
Group, Inc. and Thomas J. Kenney. (*)(13)
(z) Employment Agreement, dated January 9, 1996 between 4 Kids
Productions, Inc. and Norman Grossfeld. (*)(13)
(aa) Note, dated May 29, 1997, between the Registrant and Chemical Bank.
(16)
(bb) Security Agreement, dated May 29, 1996, by and between Leisure
Concepts, Inc. and Chemical Bank (16)
(cc) Security Agreement, dated May 29, 1996, by and between 4Kids
Productions, Inc. and Chemical Bank (16)
(dd) Security Agreement, dated May 29, 1996, by and between The Summit
Media Group, Inc. and Chemical Bank (16)
(ee) Amendment, dated as of January 1, 1997, to the Employment Agreement
between the Registrant and Joseph P. Garrity(*)(16)
(ff) Amendment, dated as of January 1, 1997, to the Employment Agreement
between The Summit Media Group, Inc. and Sheldon Hirsch(*)(16)
(gg) Amendment, dated as of January 1, 1997, to the Employment Agreement
between The Summit Media Group, Inc. and Thomas Kenney(*)(16)
(hh) Amendment, dated as of February, 1997, to the Employment Agreement
between the Registrant and Alfred R. Kahn(*)(16).
(21) List of Subsidiaries of the Registrant
(24) Consent of Deloitte & Touche LLP, Certified Public Accountants
----------
(*) Denotes a management contract or compensatory plan, contract or
arrangement.
(1) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1989.
(2) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1990.
(3) Incorporated by reference to Registration Statement on Form S-1
(File No. 33-3056) declared effective March 7, 1986.
(4) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1987.
(5) Incorporated by reference to 1992 Proxy Statement.
(6) Incorporated by reference to 1993 Proxy Statement.
(7) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1992.
(8) Incorporated by reference to Amendment No. 1 to Schedule 13D of
Alfred Kahn, Tiger Electronics Inc. and Owen Randall Rissman dated
February 22, 1991.
(9) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1991.
(10) Incorporated by reference to 1994 Proxy Statement
(11) Incorporated by reference to 1995 Proxy Statement.
(12) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1994.
(13) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1995.
(14) Incorporated by reference to Current Report on Form 8-K dated May
29, 1997.
(15) Incorporated by reference to 1996 Proxy Statement.
(16) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1996.
(17) Incorporated by reference to 1997 Proxy Statement for Annual Meeting
of Shareholders held April 30, 1997.
(18) Incorporated by reference to 1998 Proxy Statement for Annual Meeting
of Shareholders held April 29, 1998.
(19) Incorporated by reference to 1999 Proxy Statement for Annual Meeting
of Shareholders held April 29, 1999.
(20) Incorporated by reference to 2000 Proxy Statement for Annual Meeting
of Shareholders held May 17, 2000.
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the incorporation by reference in Registration
Statement Nos. 33-11718, 33-60928, 333-02289, 333-58555, 333-83153 and 333-45094
of 4Kids Entertainment, Inc. on Form S-8 of our report dated March 27, 2001
appearing in this Annual Report on Form 10-K of 4Kids Entertainment, Inc. for
the year ended December 31, 2000.
Deloitte & Touche LLP
New York, New York
March 27, 2001